240 N.W. 351 | Minn. | 1932
Lead Opinion
In 1925 Zachary T. Mullin (since deceased and of whose estate plaintiff is now administrator de bonis non) to secure a $35,000 loan, mortgaged to defendant certain Duluth real estate, the mortgage being in the form of a trust deed. It contained an assignment to the mortgagee of the rents and profits to pay taxes, assessments, and insurance premiums in the payment of which the mortgagor might default. By apt words it was attempted to make that assignment available to the mortgagee after foreclosure and during the year for redemption, in the event that the sale was to the mortgagee itself. The mortgage has been foreclosed and the property bid in by defendant, mortgagee, for the amount of the whole debt, plus an additional sum for insurance premiums paid by the mortgagee.
After the sale, November 10, 1930, defendant, claiming the right under the mortgage to collect enough rents to pay the 1929 taxes, delinquent after June 1, 1930, and the cost of repair necessary to keep the premises tenantable, was about to sue the lessees. Plaintiff thereupon commenced this action to restrain defendant from collecting any rents during the year allowed for redemption. The question is whether defendant lawfully could claim such rents, not to reduce the mortgage debt, which was paid by the foreclosure sale, but only to pay taxes and the cost of repair necessary to keep the property tenantable. The decision below, for defendant, was that the mortgage gave defendant mortgagee that right. The mortgagor's estate is insolvent, but there is no suggestion that the security is inadequate.
1. On both sides, the argument is much concerned with G. S. 1923 (2 Mason, 1927) § 9572, providing that "a mortgage of real *149 property is not to be deemed a conveyance, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure." We had supposed both that the purpose of that statute had been determined and its effect as limited by the purpose defined by our decisions. We review them briefly.
At common law a mortgage vested legal title in the mortgagee with the right to take possession before foreclosure. As was said in Cullen v. Minnesota L. T. Co.
But the statute is in derogation of long established rules of common law, and so not to be carried beyond the plain limits fixed by its manifest purpose. That was only "to abrogate the common law doctrine that a mortgage created an estate upon condition in the mortgagee, which, upon default in the performance of the condition, became absolute, entitling the mortgagee to recover possession." Hence the mortgagee still has the right to have the value of his security protected from impairment by the mortgagor's violation either of the covenants of the mortgage or the equities of the mortgagee. No statute has deprived him of that, and equity will protect it. Lowell v. Doe,
"The right to have a receiver appointed under these circumstances [merely to preserve the security], being purely equitable in character, is generally regarded as unaffected by the statutes in question." Case note, 7 L.R.A.(N.S.) 1001 (1004). For additional authorities see annotations in 4 A.L.R. 1405 and 26 A.L.R. 33.
At this point there has come a divergence in judicial opinion as to the effect of the statute upon the power of equity to protect the mortgagee. 3 Jones, Mortgages (8 ed.) § 1936; Moncrieff v. Hare,
Our rule, established in the Cullen case,
2. This foreclosure was by advertisement under the statute. G. S. 1923, §§ 9602-9633, inclusive, as amended, 2 Mason, 1927, id. *151
The effect was to discharge the mortgage, even as security for the debt. Upon foreclosure a mortgage becomes functus officio. Thereafter, if there is no redemption, it remains a mere muniment of title. To the extent of the bid at the sale, the debt ceases to exist. After foreclosure the rights of the parties are measured, not by anything in the mortgage, except as it is a muniment of title, but by the statute. "These rights are absolute, and the parties cannot be deprived of them." Pioneer S. L. Co. v. Farnham,
It follows that, whatever right the mortgagee has under the mortgage to collect rents, it is terminated by the foreclosure sale. Moreover, in this case, defendant purchased subject to the very taxes to pay which it now wants rents. That is, it is trying "to get the property for that much less than its bid at the foreclosure." That, is not permissible under the rule of Marshall Ilsley Bank v. Cady,
3. The answer as it stands shows no waste through failure to make necessary repairs or otherwise. But does demand, and the judgment awards to defendant, enough rents to pay the taxes in question, "and to enable it to make all necessary repairs to keep said premises in tenantable condition." The judgment presents, there has been argued, and we answer the question whether defendant may claim enough of the rents accruing during the year of redemption to make the repairs necessary to keep the property tenantable. Its rights under the mortgage having been terminated by the sale, its demand is to be justified, if at all, not by anything *152 in the mortgage, but by its rights as purchaser. Its status is the same as would be that of a third party purchaser.
Where the only or principal value of the property depends upon the rents, it is waste to let it become untenantable. The property now involved seems to be of that character. If not kept reasonably attractive to tenants, preventable vacancy surely results to the damage of all concerned. Vacancy resulting from disrepair causes, in addition to immediate diminution in rent, a damage to the character and reputation of an apartment building which may be much more serious. It is waste to permit it "to be neglected and become in disrepair so as to deteriorate in value and result in the loss of tenants." Larson v. Orfield,
The judgment is reversed.
Concurrence Opinion
I concur in the first two subdivisions of the opinion and in the conclusion that the judgment should be reversed, but am unable to agree with what is said in the third subdivision of the opinion or in the conclusion that the case should go back for trial of the question as to repairs.
The first two subdivisions demonstrate very clearly that defendant has no right to collect rents from the property for the purpose of paying or repaying to itself, if it has already paid them, delinquent taxes which were liens upon the property at the time it purchased at the mortgage sale or for insurance premiums paid by it prior to the sale.
But these delinquent taxes and this insurance premium are the only claims set forth in defendant's counterclaim or cross-complaint as grounds for any affirmative relief. There is no allegation *153 of any failure to keep the building in repair or any disrepair thereof, or any damage or waste in reference thereto. Hence, when we have determined that defendant is not entitled to any relief on account of taxes or insurance premium, defendant's entire claim for affirmative relief fails, and the judgment in its favor entitling it to collect rents must be reversed.
That the trial court granted judgment on the sole ground of these delinquent taxes and failure to pay insurance premium is clearly shown by its memorandum, wherein the judge says:
"It also appears that the mortgagor's estate is insolvent but not that the security is inadequate, nor that there is any physical waste or deterioration or any waste whatever except such as arises out of nonpayment of taxes for the years 1929 and 1930 and nonpayment by plaintiff of insurance premiums."
It follows that the case should not be sent back for trial of the question of what, if any, repairs are necessary, as held in the third subdivision of the opinion.
Defendant's case having failed, the plaintiff may be entitled to have determined the question of whether he is entitled to an injunction restraining the defendant from interfering with his tenants. If there remains anything to try on the present pleadings, that would seem the only remaining question. *154